The government has launched a crackdown on large buy-to-let property schemes which have helped fund a multi-billion pound building boom in high-rise apartment blocks.
The newly named Department for Productivity, Energy and Industry will go to the High Court on Wednesday to close down six companies selling get-rich-quick schemes to residential property investors, some of them through expensive seminars aimed at creating property "millionaires".
On Tuesday, the Financial Services Authority, the City watchdog, issued its first fine on a property-related matter to a regulated financial adviser. The adviser, Courtover, was fined £20,000 for approving a "misleading property promotion" for the issue of unlisted shares in a company selling overseas residences, promising returns of 20 per cent.
The DPEI said it was "very sceptical" about the claims made by many property investment companies and currently has the sector under heightened scrutiny.
Where it finds evidence of wrongdoing the DPEI's Companies Investigations Branch will have companies closed down. "
The government's action comes as experts warn a further slowdown in the housing market could leave thousands sitting on negative equity.
Most of the investors in property syndicates have borrowed heavily to buy unbuilt flats - some using credit cards to pay deposits. Prices of new flats - 56,000 of which were built last year - have fallen recently.
Inside Track, the UK's biggest buy-to-let property syndicate, also weighed in on Tuesday , calling for the government and the FSA to expose "bad apples".
Inside Track's size reflects the growing importance of such syndicates in the residential property market. It says its clients purchased one of every 12 flats built in England last year, or about £560m of property.
Like its peers, it also offers investors expensive property seminars as a prelude to encouraging them to invest.
Inside Track charges £2,400 for a two-day seminar and £6,000 to become a member of its syndicate. But it says its prices are lower and more transparent than some of its peers.
Two companies targeted by the DPEI, Sterling Mansion and Mansion Investments, offered to help clients build a £1m buy-to-let portfolio for a fee of up to £33,000, the DPEI said. Another, Turningpoint Seminars, operated £6,000 courses for prospective investors.
Inside Track, whose managing director, Brad Rosser, is a former associate of Sir Richard Branson, is seeking to float or sell its property syndication business this year for at least £150m. But it is worried about increasingly negative publicity that, it believes, tarnishes the whole industry.
"The reputation of our own business has been damaged by association with the fly-by-night element of the sector and we're keen to see these opportunists regulated out of existence," said Anthony McKay, chief operating officer of Inside Track.
Government officials said there were no plans to regulate the industry because there were already sufficient powers to close down offenders.
The Association of Residential Letting Agents, which is seeking to encourage buy-to-let as a long- term investment strategy, said it was "delighted" by the government's move.
Additional reporting by Jim Pickard
